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Sell the house short, take the money and run away.
Key Point
- Not being able to pay your mortgage is scary.
- There are several options to consider in this situation.
- If you can choose to sell short rather than foreclose, you will end up with less money in the end with less impact on your credit.
My history with homeownership hasn’t been great, but I hope to change that in the next few years. I laid off my job, got divorced within months, and then moved to another state for work. Somehow I had to get out from under the house.
I tried to sell the house soon after I moved, but there were no offers and my ex-spouse decided I wanted to live in the house even though he couldn’t afford it. I had my house put on hold (a loan modification consisting of suspending or reducing mortgage payments for a period of time). After a long period of unemployment while trying to find a new job in my field, I moved back to my home state, stayed with friends, and planned my next move. Two months later I got a job in another state and moved again. So I was dealing with the whole situation unseen from 500 miles away from her.
bad choice
By the time I was discussing mortgage repayments with my bank, I knew that foreclosure would be my only option. A foreclosure occurs when the mortgage lender goes through a legal process to get your home back because you are behind on your payments. They will then sell your previous home to recoup the losses from those arrears. Foreclosures also hurt your credit score for years. In fact, foreclosures are second only to bankruptcy on the list of the worst things that can happen to your credit.
better option
However, my mortgage lender was more than happy to cooperate with me on the short sale. A short sale has the same consequences as a foreclosure. You no longer own a home or owe money. However, in a short sale, the homeowner works with the lender to sell the home instead of seizing it and selling it at auction. The lender usually pays the cost of selling the home (and advertises the home as short), retains the proceeds, and may even forgive the loan given to the original homeowner.
Sometimes current former homeowners are eligible to receive lump sums of money known as seller incentives. Please note that short selling is not a blank slate: your credit can still be severely affected It is possible and the short sale will take years (this will show up on credit as a settled mortgage or a lesser fully paid account). to fall off your credit report. You may also have to pay taxes on the forgiven debt unless you qualify for tax relief.
my short sale
The process of writing off mortgage debt was not without its problems. I had to scrutinize the realtors contacted by the lender. Thankfully he turned out to be a sharp cookie and understood that I was physically away from home. I had to spend a lot of time. I ended up having to pay for cleaning and groundskeeping to give my home curb appeal. I remember calling and emailing agents and mortgage lenders numerous times. Thankfully, it finally ended and I was pleasantly surprised.
money to restart life
I found myself eligible for just over $8,000 in seller incentives from my mortgage lender. I was able to pay for yet another out-of-state move and all the costs that came with it. Thankfully, I was able to qualify for tax relief under the Mortgage Forgiveness Debt Relief Act of 2007 (valid through 2017). This allowed us to exclude “income” in the form of canceled debts.
It’s been several years since I went through the short sale process. My credit is better than it was before I bought the house and will continue to improve. If you can also become a homeowner, you will be older and smarter through the process when it comes to money.
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